Togo - Feeder Roads Project

FILE COPY Doument of The World Bank FOR OFFICIAL USE ONLY Regmut No. P-2279-TO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A FEEDER ROADS PROJECT May 12, 1978 This domeut h* a resticted distbuton ad may be md by recipimets only in the perfomnce of their oWkil du. Its eatts ma t otherwise be disclead withot World Bank athorzation.  CURRENCY EQUIVALENTS Currency Unit = CFA franc (CFAF) US$1.00 = CFAF 245 CFAF 100 million = US$4,080 Fiscal Year January 1 - December 31 System of Weights and Measures: Metric Metric US Equivalents 1 meter (m) 3.28 feet (ft) I square meter (s2) 10.76 square feet (sq. ft.) 1 cubic meter (m ) 35.30 cubic feet (cu ft) 1 kilometer 2 0.62 mile (mi) 1 square kilometer (km ) 0.39 square miles (sq. mi) 1 hectare (ha) 2.47 acres I metric ton (t) 2,205 pounds (lb) Abbreviations and Acronynns DGR Departement du Genie Rural EDF European Development Fund ERR Economic Rate of Return FRU Feeder Road Unit ITWG Interministerial Technical Working Group MCT Ministry of Commerce and Transport MEPW Ministry of Equipment, Public Works, Housing, Post & Telecommunications MI Ministry of Interior MRD Ministry of Rural Development MRW Ministry of Rural Works OPAT Office des Produits Agricoles Togolais ORPV Organismes Regionaux de Promotion et de Production des Cultures Vivrieres PWD Public Works Department SORADs Societes Regionales d'Amenagement et de Developpement SOTOCO Societe Togolaise du Coton SRCC Societe pour la Renovation du Cafe et du Cacao vpd Vehicles per day  FOR OFFICIAL USE ONLY TOGO FEEDER ROADS PROJECT Project Summary Borrower: The Republic of Togo Amount: US$5.8 million Terms: Standard IDA Project The proposed project, which is designed to help estab- Description: lish an efficient institutional framework for planning, executing and maintaining feeder roads in support of agricultural development would include: (a) a four-year program for the construction and improvement of about 1,000 km of feeder roads; (b) technical assistance to establish a Feeder Roads Unit within the Department of Rural Works to implement the above program and train local staff (87 man-months); and (c) a study of a fol- low-up feeder road program (4 man-months). Some of the quantifiable benefits expected to result from the road improvements are reduced vehicle operating costs, reduced produce spoilage and induced increases in agri- cultural production. Institution building represents a major, if unquantifiable benefit. About one-third of the benefits from increased cash crop production are expected to accrue to farmers and the Government while most benefits resulting from increased foodcrop produc- tion will go to farmers. Benefits from reduction in transport costs are expected to be shared by trans- porters, traders and the local communities. About 48,000 people live in the project area. The main risk associated with the project would be the failure of the project's executing agency to develop the capacity to execute the project on schedule. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: (net of taxes) --------US$ million------ Percentage of Local Foreign Total Project Costs Equipment, materials and supplies, and civil works 1.69 4.24 5.93 72 Technical Assistance and studies 0.14 0.50 0.64 8 Contingencies 0.59 1.14 1.73 20 TOTAL PROJECT COST 2.42 5.88 8.30 100 Financing Plan: ------US$ Million------ Local Foreign Total IDA - 5.8 5.8 Government 2.4 0.1 2.5 TOTAL 2.4 5.9 8.3 Estimated Disbursements: ---------- US$ Million --------- FY 1979 1980 1981 1982 1983 Annual 2.25 0.89 0.92 1.00 0.74 Cumulative 2.25 3.14 4.06 5.06 5.80 Estimated Completion Date: December 1982. Economic Rate of Return: About 21 percent for the roads to be improved during the first year. A minimum rate of 10 percent for any individual road project to be subsequently selected. Staff Appraisal Report: No. 1944-TO, dated May 2, 1978.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A FEEDER ROADS PROJECT 1. I submit the following report and recommendation on a proposed dev- elopment credit to the Republic of Togo for the equivalent of US$5.8 million on standard IDA terms to help finance a feeder roads project in Togo. PART I - THE ECONOMY 2. The most recent economic report on Togo, Report No. 458a-TO "Current Economic Situation and Prospects of Togo" was issued on December 30, 1974. A basic economic mission visited Togo in March/April 1976, and the report is being discussed with the Government. Some of the report's findings are incorporated below. Annex I contains basic country data. Economic Performance 3. Togo's long-term annual average growth of GNP per capita in real terms was about 4 percent during 1960-76. From 1960 to 1970, GNP growth in real terms was steady, averaging some 6 percent yearly. The sustained expan- sion of Togo's economy was due mostly to a vigorous expansion of phosphate exports at favorable prices and also to good market conditions for cocoa and coffee exports. With its low-tariff structure -- a legacy from trusteeship days -- Togo developed into an important regional commercial and trade center. Between 1965 and 1970, Togolese exports increased by 22 percent a year in current prices. During this same period, imports -- particularly of consumer goods, of which a high percentage were subsequently re-exported -- also rose sharply. The 1970's brought some reduction in the real growth rate of the economy, as a result of slow growth in agriculture and fluctuations in phos- phate production. However, sparked by generally buoyant domestic demand, construction and services continued their rapid rise. Togo's population in 1976 is estimated at 2.3 million and GNP per capita at $260. 4. Although substantial progress was made in developing industry and tourism during the second five year development plan (1971-75), economic performance in Togo still depends preponderantly on the export of phosphate, cocoa and coffee, which together account for about 80 percent of export receipts. Phosphate production expanded steadily from 1.5 million tons in 1970 to 2.6 million tons in 1974. In 1974, there was a favorable shift in Togo's terms of trade, reflecting a threefold increase in world market prices for phosphate. Subsequently, in 1975, world prices declined sharply; output fell from 2.6 to 1.2 million tons and phosphate export earnings fell from CFAF 38 billion to CFAF 16.5 billion. Since then, phosphate production has recovered to 2.0 million tons in 1976 and 2.8 million tons in 1977, and export  earnings in 1977 are estimated to be about CFAF 24.0 billion. Cocoa and coffee exports fluctuated during the 1970's with no discernible trend, averag- ing about 16,000 tons and 9,000 tons per year respectively. But high world prices in the 1977 and 1978 crop years have yielded record export earnings and stabilization fund surpluses. Financial Developments 5. Prior to the 1974 phosphate boom, Togo's financial and investment policies were generally prudent and well adapted to the smallness and open- ness of the economy and to its dependence on a few primary commodities for foreign exchange earnings and Government revenues. Total public expenditure was commensurate with the availability of domestic and foreign financial resources, and the Government maintained adequate reserves in the form both of deposits with the banking system and net foreign assets. Public invest- ments tended to be concentrated in infrastructure, education and health ser- vices, while private investment was channeled to industry, trade and tourism. However, development of agriculture tended to lag mainly because of institu- tional bottlenecks and the vagaries of weather. Foreign financial and tech- nical assistance on concessionary terms was forthcoming from a variety of donors, and the debt service burden was negligible. 6. During the 1973-76 period, the current budgetary receipts of the Treasury grew from CFAF 12 billion to CFAF 38 billion, or by an annual average rate of 49 percent. In 1975 and 1976, however, phosphate export receipts lagged behind expectations, while the Government was engaged in an expansionary policy. Since then, the Government has found itself progres- sively in need of budgetary resources additional to those derived from phos- phate. In 1976 the agricultural marketing and stabilization agency (OPAT) considerably increased its contribution to the budget, transferring almost all of its net profits after having paid its regular corporate profit tax. Total Government expenditure, including current and investment expenditures, grew from CFAF 13 billion in 1973 to CFAF 50 billion in 1976. Current budgetary expenditure grew by almost 50 percent every year and investment expenditure quintupled in three years. As a consequence, the overall deficit rose from CFAF 3 billion in 1974 to CFAF 12 billion in 1976, financed by the use of Central Bank credit, accumulated cash balance by the Togolese Phosphate Agency (OTP) and the accumulation of arrears. In 1977 and 1978, the rate of growth of budgeted expenditures was substantially reduced to about 9 percent per year. Due to the rapid achievement of production capacity in phosphates and record world market prices for cocoa and coffee in 1977/78, surpluses of the marketing agencies for these products will add substantially to Central Government revenues. However, with the real growth of phosphate over the next three years limited by existing mining capacity and with a possible decline in cocoa and coffee prices, Government financial equilibrium is unlikely to be restored without reductions in Central Government expenditures.  -3- The 1976-80 Development Plan 7. The 1976-80 Development Plan assesses the physical and institutional bottlenecks in future growth with considerable realism, although financial targets have had to be revised in the light of recent price movements. The Government's strategy is to further diversify the economy and exploit natural resources, to rehabilitate and expand both food and cash crops production, to further improve the country's infrastructure in order to lay the ground for new, directly productive investments and to promote international regional cooperation. A longer term development policy gives emphasis to equity and employment, including basic education reform, rural development programs and extension of the feeder roads network, promotion of small and medium-scale indigenous enterprises. However, in the past two years of the current plan period, the largest share of investable resources has gone to industrial development and tourism, including the construction of the CIMAO clinker plant, an oil refinery, a scrap steel mill and two large hotels. Economic and Financial Prospects 8. Despite the severity of the public finance situation, real growth and employment in the plan period will be stimulated by high investment demand with substantial effects on construction and services. However, phos- phate production and agricultural production will remain constrained in the medium term and the rapid real growth achieved in the first two years of the 1976-80 Plan is not likely to be sustained. The 50 percent domestic con- tribution to total investment experienced during the second plan period is also not likely to be repeated in the current plan period. This is due to the lower level of phosphate prices and the much higher level of total public expenditure including budgeted debt service, which rose from CFAF 1.0 billion in 1974 to 8.0 billion in 1977 and 1978, or 15 percent of total budget ex- penditure. During 1971-1974 aid to Togo was provided on soft terms, with grants accounting for about half the capital inflow. The European Development Fund, the Federal Republic of Germany, and France were the major donors. More recently, although official development assistance has been maintained, the share of suppliers' credits and commercial borrowing has risen sharply. As of December 31, 1976, the country's external public debt outstanding and un- disbursed amounted to $167 million. Average debt service payments (including short-term debt service) which amounted to about 4 percent of exports from 1971 to 1975, rose to about 19 percent in 1976 and are likely to remain at that level over the next few years. 9. In view of the country's low per capita income, the growing need for external funding of priority projects in an expanding economy, and Togo's exposure to widely fluctuating world market conditions, the major part of foreign financing necessary to sustain economic growth should continue to be provided on concessionary terms. Because Togo is expected to be able to finance about 30 percent of its public investment program, foreign donors should continue to provide on the average at least 70 percent of total project costs including -- in appropriate cases -- some financing of local costs.  -4- PART II - BANK GROUP OPERATIONS IN TOGO 10. To date the Bank Group has extended six credits to Togo amounting to US$51.9 million and two loans totalling US$53.0 million for the CIMAO regional clinker project (a loan of US$3.5 million to Togo and one of US$49.5 million to CIMAO). Three of the credits were for highway construction and maintenance and three for agricultural projects. Annex II contains a summary statement of Bank Group operations in Togo as of March 31, 1978, as well as notes on the execution of the projects. 11. The Highway Maintenance Project, the Bank Group's first lending operation in Togo, was satisfactorily completed in November 1973. The Second Highway Project evolved from preinvestment studies financed under the first project and provided for the construction or upgrading of three highways and the continuation of the maintenance program. This project is progressing satisfactorily although, due to inflation, the scope of the road construction component had to be reduced in 1976. The Third Highway Project which became effective last September has, as its main objective, the improvement of two important roads serving mainly agricultural areas, and the continuation of the efforts begun under the two previous highway projects to build up an efficient road maintenance service. 12. The first agricultural project for which a credit was approved in 1974, covers part of a long-range program for the development of the Plateau Region's coffee and cocoa potential. This project, which includes the plant- ing and maintenance of 4,400 ha of cocoa and 4,000 ha of coffee, is proceed- ing well. The second agricultural credit, which was approved in June, 1976, provides financing for a rural development project in the Maritime Region geared primarily to increase foodcrop production and to provide support services and rural infrastructure for 20,000 farm families. Project implemen- tation has begun on schedule. The third and most recent agricultural credit which was approved by the Board last October supports a 5-year program to increase cotton and foodcrop production by introducing improved cotton growing techniques and encouraging cropping patterns in which foodcrops would benefit from the residual effects of fertilizers applied to cotton. 13. Togo is the host to the CIMAO project, one of the largest inter- national industrial ventures so far undertaken in West Africa. Implementation of this US$284 million clinker project, financed by the Bank and seven other official aid agencies, is proceeding satisfactorily. 14. Present Bank Group disbursements account for about 10 percent of Togo's disbursed and outstanding public debt (as of early 1978). Service payments to the Bank Group which are now less than 1 percent of total debt service will remain at about this level over the medium-term. The future lending program will include a follow-up agricultural project in the Plateau Region, a rural development project, an education project, a highway project, a DFC project and a second phase of the CIMAO project.  -5- PART III - THE SECTOR Agricultural Background 15. Agriculture is vital to the Togolese economy. It employs some 75 percent of the active population and provides nearly 40 percent of the country's total export earnings. 16. Togo's approximately 300,000 farm families work holdings that average 2.5 ha. Cultivation is usually done by traditional techniques and yields are low. Yams, maize, rice and sorghum account for over 80 percent of agricultural output, the bulk of which is for subsistence. The main export crops are cocoa and coffee (which together account for 75 percent of agricultural exports), cotton, groundnuts, and copra. GDP per capita in the rural sector is low, less than US$100. 17. Responsibility for the agricultural sector is shared by two minis- tries: the Ministry of Rural Development (MRD) and the Ministry of Rural Works (MRW). The former is concerned with policy formulation and coordination of production activities and the latter with rural infrastructure development and support services, including rural engineering through the Rural Works Department (Direction du Genie Rural, DGR). Responsibility for the planning of rural projects rests with the Ministry of Plan. Recently, the Government established several cash crop-oriented autonomous agencies with responsibili- ties ranging from supply of inputs and provision of extension services to rural engineering, credit distribution, marketing and processing, such as the Societe pour la Renovation du Cacao et du Cafe (SRCC) for cocoa and cof- fee, and the Societe Togolaise du Coton (SOTOCO) for cotton. At the end of 1977, the Societes Regionales d'Amenagement et de Developpement (SORADs) which were responsible for regional development were dissolved and replaced by organizations more specifically oriented towards foodcrop production: the Organismes Regionaux de Promotion et de Production des Cultures Vivrieres (ORPVs). 18. Growth of the agriculture sector has lagged behind the rest of the economy. While GDP growth in real terms averaged 6 percent from 1960 to 1975, agricultural production increased by only 3 percent per year. Agricultural exports stagnated due to the Government's neglect of the agricultural sector in the 1960's (both in terms of investments and in establishing effective institutions), agro-climatic constraints, and socio-political obstacles such as local overpopulation in some regions, migration and poor roads. 19. In recent years, however, the Government has been increasingly aware of the importance of the agricultural sector in the country's economic development. The Third Development Plan (1976-80), which allocates 22 percent of planned investments to agriculture, calls for substantial improvements in agricultural performance both for industrial crops and foodcrops. For indus- trial crops, the Government's objective is to restore traditional exports. A major program for coffee and cocoa rehabilitation started in 1974 with IDA assistance and should yield results by the end of the decade. A follow-up project is under preparation. A five-year cotton development program supported  -6- by IDA and The French Fonds D'Aide et de Cooperation (FAC) has just begun. There is scope for rehabilitation of traditional copra production, and pos- sibilities for development of other products such as oil palm, sugar cane, tobacco and cashew nuts are being examined. For foodcrops, the Government hopes to slow down food imports and reach self-sufficiency in the eighties through the improvement of yields and expansion of cropped areas. Recent increases in official farmgate prices for export crops, higher producer prices for foodcrops resulting from increased urban demand, improved credit and support facilities for organized farmers, and easier access to markets should help achieve these objectives. The Transport System 20. Togo's transport system consists of about 7,400 km of roads, 436 km of railway, a deep water port, a phosphate wharf, an international airport and five airstrips. Road transport is the predominant mode. The network is most dense in the south. The country's two most important roads, which extend from Lome north to the Upper Volta border (717 km) and east to the Benin border (48 km), are paved, except for the last 200 km to the Upper Volta border. Also, some 590 km of secondary roads are paved. The rest of the primary and secondary networks (about 1,200 km) are all-weather gravel or laterite roads. An estimated 5,000 km are mostly dry-weather feeder roads and tracks. The Road Transport Industry 21. Togo's road transport industry comprises: many small Togolese transporters who own one to five passenger cars or trucks; two large foreign companies which handle petroleum tanker traffic; the Togo railway which oper- ates 6 passenger buses on the Lome-Palime-Atakpame route; and, since 1976, Togo-Route, a semi-public company which is authorized to engage in inter- national and domestic transport of both passenger and cargo, but has so far limited its intervention to international cargo traffic. There are no re- strictions on vehicle importation or entry in the transport business. The Third Highway Project includes a study of current and future supply and demand of transport with the objective of recommending measures to avoid overinvest- ment in transport capacity. Transport on the feeder road network is handled either by small private truckers or, in the case of cash crops, by coopera- tives. The supply of transport is generally adequate with sufficient com- petition between operators to ensure that most of the vehicle operating cost savings from road improvements under the proposed project would be passed on to the producer. Highway Administration 22. The Roads Division of the Public Works Department (PWD) of the Ministry of Equipment, Public Works, Housing, Post and Telecommunications (MEPW) is responsible for the planning, engineering, construction and main- tenance of the primary and secondary road networks. The Roads Division has five field subdivisions comprising 18 sections. All road equipment is main- tained by PWD's Equipment Division in its main workshop at Lome and in an  - 7 - annex up-country at Sokode. The Equipment Division has the capacity to service equipment used on feeder roads by other Government agencies. 23. Serious efforts to improve maintenance of the primary and secondary road network began in 1968 under the First Highway Project, but fell short of expectations (Project Performance Audit Report of June 24, 1977). This was due primarily to an inappropriate diversion of maintenance resources and an overestimation at appraisal of the quality of PWD staff and of the number of counterparts available to consultants. However, the project provided the basis for a Second Highway Project under which maintenance of primary and secondary roads improved considerably following reorganization of maintenance operations and training of PWD staff. This action is to be continued under the Third Highway Project. 24. Responsibility for the development and maintenance of feeder roads is shared among three ministries - Interior, Equipment and Public Works, and Rural Works, plus other agencies such as SRCC, SOTOCO and ORPVs. Coor- dination between these agencies is poor and both planning and maintenance suffer as a result. To remedy the situation, the Government intends to reorganize and equip the Rural Works Department (Direction du Genie Rural, DGR) of the Ministry of Rural Works, which presently carries out preliminary engineering and design of feeder roads, to assume full responsibility for feeder road development and maintenance. As a first step, the Government would establish a Feeder Roads Unit within DGR under the proposed project. 25. Employment conditions make it difficult to recruit and retain key personnel in PWD and this could also apply to DGR. The Government has there- fore agreed to undertake a study of employment conditions in PWD, DGR and the private sector. The Government would discuss the study's recommendations with the Association not later than June 30, 1979, and implement them thereafter (Development Credit Agreement Section 3.01 (k)). Financing 26. Highway investments in the primary and secondary road networks averaged US$7.0 million per year during the 1971-75 period, and were mostly financed by the European Economic Community, IDA and the French Fonds d'Aide et de Cooperation. Highway maintenance expenditures increased from $1.3 mil- lion in 1971 to $2.2 million in 1975 and are provided almost solely by the general budget which also finances minor improvements and small equipment purchases. The level of these expenditures would be adequate, if the funds were limited to financing mostly maintenance activities rather than major betterment works as has been the case. 27. Expenditures for feeder roads improvement are financed by the Central Government budget, the agricultural product marketing and price stabilization agency (OPAT), the European Economic Community and IDA. Main- tenance expenditures have been small amounting to about $150,000 in 1976. The cost of maintenance ranges between $120 and $200 per km. The total cost of maintaining a network of 2,250 km of feeder roads (including the 1,000 km of the proposed project), which is envisaged for 1982, would amount to $300,000 per year. The Government will provide the necessary funds.  PART IV - THE PROJECT 28. The project is described in detail in the Staff Appraisal Report No. 1944-TO, dated May 2, 1978 and summarized at the beginning of this report. Annex III contains supplementary Project data. The project is based in part on a study financed by IDA under the Second Highway Project and carried out by the French consultants BCEOM. Appraisal took place in July 1977 followed by a post-appraisal mission in December, 1977. Negotiations were held in Washington in April 1978. The Togolese delegation was led by His Excellency Mr. M. Kekeh, Togolese Ambassador to the United States, and included representatives of the Ministries of Planning, Finance, and Rural Works. Project Description 29. The proposed project would consist of: (a) a four-year program for the improvement and maintenance of about 1,000 km of feeder roads, including purchase of equipment, spare parts, workshop tools, materials and supplies, and construction and repair of culverts and bridges; (b) technical assistance to establish the Feeder Roads Unit within the Rural Works Department of the Ministry of Rural Works, to implement the above program, to train local staff and to improve the effectiveness of the Public Works Department road brigades; and (c) short-term consultant services for studying a follow-up feeder roads program. 30. The 1,000 km of roads to be improved were selected from about 4,000 km serving ongoing or planned agricultural projects. The proposed improve- ments would consist of reshaping and regravelling selected road sections, and building and repairing drainage structures. Road design standards have been agreed upon with the Government (Development Credit Agreement, Section 3.01 (h) and Schedule 4). 31. In order to provide the necessary flexibility in planning and executing the feeder roads program, only the first year program has been defined in advance. The programs for the subsequent years would be prepared annually by DGR and reviewed by an Interministerial Technical Working Group which the Government has agreed to set up before February 28, 1979. The Group would include representatives from the Ministries of Planning, Finance, Rural Development, Rural Works, Equipment and Public Works as well as important national and regional agencies with a direct interest in feeder roads. The programs would be submitted to the Association for approval three months before the works are scheduled to start. Assurances as to all of the above have been obtained from the Government (Development Credit Agreement, Section 3.01 (c), (d),(e) and (f)).  - 9 - 32. The Ministry of Rural Works through DGR would have overall respon- sibility for the execution of the project. The Government has agreed to establish not later than July 31, 1978 a Feeder Roads Unit within DGR (Devel- opment Credit Agreement, Section 3.01(g)). However, DGR would carry out the improvement of only 600 km of roads. The remaining 400 km would be subcon- tracted by DGR to PWD. This arrangement would have the double advantage of not overburdening DGR at an early stage of its expansion and increasing the presently low productivity of PWD's equipment. The signing of a contract satisfactory to the Association between DGR and PWD for PWD to carry out this work and for its Equipment Division to maintain DGR's equipment would be a condition of credit effectiveness (Development Credit Agreement, Sections 3.01(b) and 5.01). 33. DGR would maintain the 600 km of roads that it would improve. In addition it would maintain 250 km of priority roads, which would eventually be increased to 1,250 km to include the feeder roads already financed by IDA in agricultural projects. The equipment purchased under these projects would be progressively transferred to DGR. PWD would maintain the more heavily used of the roads that it would improve during the project implementation period, but it would transfer the maintenance of the less trafficked roads to DGR after the first year. 34. Physical execution of the project is scheduled to start in October 1978 for the PWD road brigades and March 1979 for the DGR brigades, and be completed by December 1982 in accordance with an implementation schedule dis- cussed with the Government during project appraisal. 35. The possibility of using various mixes of labor and equipment for the improvement work has been examined. The conclusion is that there is little scope for use of labor-based technologies because of the limited availability of unemployed labor in several areas, the nature of the works and the higher economic costs. Consequently, improvement works would be carried out as follows: DGR would employ one fully mechanized brigade where heavy clearing or significant earthworks have to be done, and one intermediate brigade elsewhere. PWD roads would be built by the existing PWD road better- ment and regravelling units. The technology and plan of action for the execution of maintenance works would be defined by the Feeder Roads Unit. DGR would be provided with a maintenance road brigade to maintain priority feeder roads and those improved under IDA credits. 36. The primary function of the technical assistance for DGR (5 experts for 77 man-months) would be to establish the Feeder Roads Unit, train local staff, and assist the Unit in developing a strategy for both improvement and maintenance of the roads, in defining annual programs and in preparing detailed plans for their execution; it would also assist the unit with preparation of bidding documents, procurement and supervision. Training would be provided for the Unit personnel at all levels, including engineers, road technicians, mechanics, brigade chiefs, foremen, equipment operators and drivers. The Gov- ernment has agreed to prepare and submit by December 31, 1978 to the Associa- tion for comments a comprehensive training program to be implemented promptly thereafter (Development Credit Agreement, Section 3.01 (j)).  - 10 - 37. Ten additional man-months of technical assistance are provided to strengthen PWD activities for the improvement of the feeder roads under the proposed project. Funds are also included for short-term consultants (about 4 man-months) to supplement the efforts of technical assistance to study a follow-up project. The Government has agreed to employ on or before Sept- ember 30, 1978 experts whose qualifications, experience and conditions of employment are satisfactory to the Association, and to attach local staff to the Feeder Roads Unit (Development Credit Agreement, Sections 3.02 and 3.01 (i)). The proposed study for the follow-up project would be completed not later than September 30, 1981 (Development Credit Agreement, Section 3.01(a)). 38. The economic, social and engineering aspects of the project would have to be monitored closely by the Feeder Roads Unit to permit, if necessary, modification of the project during implementation to improve its effectiveness, to assess the long-term socio-economic impact of the program and to test some of the assumptions underlying the engineering design. Arrangements for carry- ing out monitoring activities have been agreed with the Government (Development Credit Agreement, Section 4.02). Cost Estimates and Financing 39. The total cost of the project is estimated at US$8.3 million net of taxes and duties, with a foreign exchange cost of US$5.9 million (71 per- cent). Taxes and duties are estimated at $0.8 million. The proposed credit of US$5.8 million would finance about 70 percent of total project cost net of taxes, i.e., all foreign costs with the exception of those for maintenance. The Government would finance the local costs (US$2.4 million) and US$0.1 mil- lion in foreign exchange. 40. Cost estimates for equipment are based on bids received in 1977 in Benin for similar equipment. The cost of technical assistance is estimated at $7,500 per man-month which corresponds to rates charged by firms working in the region. The financial cost, net of taxes, of constructing and improving roads, including equipment depreciation but excluding contingencies is about US$2,500 per km for access tracks, US$4,200 for 4.0 m wide roads and US$6,700 for 5.5 m wide roads. Procurement 41. Equipment, vehicles, materials and supplies amounting to about US$2.0 million (net of taxes) would be procured on the basis of international competitive bidding in accordance with Bank Group Guidelines. These items would be bulked to the extent possible to make them suitable for international competitive bidding. Goods manufactured in Togo would be allowed the standard preference margin. Contracts for equipment, vehicles, materials and supplies costing under US$50,000 would be awarded on the basis of competitive bidding following local procedures acceptable to the Association. The aggregate amount of such purchases would not exceed US$400,000. Contracts for the construction of drainage structures totalling about US$200,000 would follow local competitive bidding procedures acceptable to the Association. Consul- tants for technical assistance and for the feeder road follow-up study would be employed in agreement with and under terms of reference and conditions satisfactory to the Association.  - 11 - Disbursement 42. The IDA Credit would be disbursed to cover: (a) 100 percent of the foreign expenditures of imported equipment, vehicles, spare parts, office equipment, hired equipment, fuel and lubricants, and 82 percent of the local costs (net of taxes) of these items if purchased locally; (b) 54 percent of total expenditures for civil works; and (c) 80 percent of total expenditures for technical assistance experts and consultants. Project Benefits 43. The development of an adequate feeder roads network is essential to the development of the rural sector. A road-by-road justification of the first-year program has been made using as benefits road-user savings and reduced produce spoilage. Benefits from induced increased agricultural production during the first-year program were assumed to be insignificant since these roads, even in their present state, provide access between farm areas and the main road network. For the following project years, the eco- nomic justification of the roads will take into account induced increases in agricultural production as appropriate. The rate of return for the roads to be improved in the first year of the project is estimated at 21 percent. For the subsequent years, the roads would have to yield a minimum rate of return of 10 percent to be included in the program. 44. Distribution of project benefits would depend on the Government's policy on producer prices for food and cash crops and the extent of competi- tion in the transport industry. Approximately a third of the benefits from increased cash crop production, mostly cocoa and coffee, would accrue to farmers. OPAT and the Government would share the remaining benefits, part of which would eventually be passed on to the farmers in the form of sub- sidies and improved agricultural services. Farmers would gain most of the benefits from foodcrops by selling more at a higher price. Benefits from reduced transport costs on non-agricultural traffic would be shared by the communities in the project area, the transporters and the traders. 45. The benefits from institution building are of primary importance and the project provides benefits in this area which cannot be quantified. The establishment of a unit, which would ensure a comprehensive approach to the planning and development of feeder roads, would avoid duplication and lead to more rational use of scarce financial and human resources. The training component would decrease the need for technical assistance in follow- up projects. The establishment of the Feeder Roads Unit and the Interminis- terial Technical Working Group would ensure that development of agriculture and feeder roads is better coordinated.  - 12 - Project Risk 46. The main risk associated with the project would be that DGR may not develop the necessary capacity to execute the project on schedule, despite staff training and technical assistance. There is also some risk that con- siderations which go beyond the criteria of selection agreed upon with the Government may creep into the selection of the roads for the annual programs. PART V - LEGAL INSTRUMENTS AND AUTHORITY 47. The draft Development Credit Agreement between the Republic of Togo and the Association and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. 48. Features of the Development Credit Agreement of special interest are listed in Section III of Annex III. In addition, the following event is specified as a special condition of effectiveness: that arrangements satis- factory to the Association shall have been entered into between the DGR and PWD whereby PWD shall be entrusted with (i) the improvement of 400 km of the Project roads and with (ii) the maintenance of DGR equipment purchased under the Project. 49. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 50. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments May 12, 1978  - 13 - ANNEX I Page 1 TABLE 3A TOS - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) ------